IRS Rulings & Determinations

Situation #1:

1. Instructor A: A school offering courses of instruction for certain occupations in the airline industry engaged instructors, under an oral agreement, to teach on a part-time basis during hours that did not conflict with their regular jobs.
2. Facts of the Situation:
   
   1. The school decided which courses to offer and determined the requirements for each course.
   2. It advertised and offered the courses in its own name.
   3. The instructors performed their services in facilities provided by the school, were provided the materials necessary to teach, and were supervised and reviewed by the school.
   4. Fees for the courses were paid directly to the school
   5. An instructor could terminate his/her relationship with the school at any time. Conversely, the school could terminate the relationship if the instructor did not follow the curriculum.
3. IRS Ruling: The IRS ruled that the school exercised sufficient direction and control, not only as to what should be done, but as to how it should be done, to establish the existence of an employer-employee relationship (Rev. Rul. 70-308).

Situation #2:

1. Instructor B: A university engaged Adjunct Law Professors who practices or had practiced law as their primary careers.
2. Facts of the Situation:
   
   1. The adjunct professors were given guidance regarding academic standards, withdrawal procedures, grades, and student behavior.
   2. They received instructions on reporting requirements, faculty dress code, campus mail, and the use of university copy machines.
   3. They were instructed on the need for consistent course quality and on preparing syllabi for their courses.
   4. The university supplied adjuncts with supplies and materials necessary to teach the courses.
   5. The adjunct law professors did not have a significant investment in a business related to educational services.
3. IRS Ruling: The IRS noted that the fact that a worker makes their services available to the general public on a regular and consistent basis indicates an independent contractor relationship. The adjunct law professors, however, provided legal services, rather than educational services, to the general public. Accordingly, their status as practicing attorneys was not a factor indicating their status as independent contractors with respect to the educational services they provided to the university (PLR 8925001).

Situation #3:

1. Instructor C: Teachers instructing regular classes at a music conservatory performed services under two different arrangements, as noted below.
2. Facts of the Situation:
   
   1. Group A: Instructors of technical classes for a regular remuneration.
      
      1. The instructors were required to spend designated hours instructing regular conservatory classes, conducting examinations, and performing other duties as occasionally required by the conservatory.
   2. Group B: Instructors of their own pupils in private lessons for the amount of tuition fees collected by the conservatory from the pupils, minus a specified percentage retained by the conservatory.
      
      1. The conservatory furnished a studio for the teacher's use, included information about the teacher in its catalogue, registered the teacher's students, recorded lessons, and imposed and collected all tuition charges made by the teacher.
      2. The teacher agreed not to teach elsewhere within the vicinity without the consent of the conservatory and guaranteed that the portion retained by the conservatory would amount to a specified sum.
      3. The teacher could not be dismissed during the life of the contract but the conservatory could refuse to renew the contract upon its expiration.
3. The IRS Ruling: The IRS held that the teachers in Group A were employees because the conservatory had sufficient right to direct and control the manner of performance of their service. However, the conservatory did not exercise, or have the right to exercise, the degree or direction and control necessary to establish an employer-employee relationship over the teachers in Group B. Although the conservatory insisted upon the maintenance of certain musical standards, it had no right of control over the manner in which the teachers conducted their private lessons or gave instruction. The acceptance, refusal, or dismissal of pupils was determined by the teacher and no refunds of fees collected by the conservatory could be made without the consent of the teacher (Rev. Rul. 70-338).

Situation #1:

1. Hospital Workers: A radiologist, a physical therapist, and several physicians were treated by a hospital as independent contractors. Their contract with the hospital provided the following noted below.
2. Facts of the Situation:
   
   1. Minimum guaranteed compensation amounts, vacation and sick leave; payment of insurance premiums; maintenance, repairs, supplies, equipment, janitorial services, laundry services, personnel, and other support services; and
   2. The workers were required to devote specified amounts of time to their hospital duties.
3. The IRS Ruling: The IRS concluded that the workers were employees based on the following factors:
   
   1. The hospital exercised sufficient control over the workers to ensure the hospital's success or failure.
   2. The workers had no investment in the business of the hospital or the buildings and thus bore no risk of loss other than that ordinarily assumed by employees (in fact, they were contractually guaranteed a specific amount of compensation);
   3. The workers expended no money or effort to generate work, did not hire assistants or pay for their own offices or equipment;
   4. The workers had a continuing relationship with the hospital (some had contractually performed services there since 1988); and
   5. The workers did not perform similar services for others (PLR 9443002).

Situation #2:

1. Nurse: Licensed practical and registered nurses engaged in private-duty nursing.
2. Facts of the Situation:
   
   1. Many registered and practical nurses hold themselves out to the general public as independent contractors, have full discretion and control over their professional activities, and are only subject to the direction and control of an attending physician.
   2. Some registered and practical nurses, however, are on the regular staff of a hospital, clinic, nursing home, physician, etc., work for a salary, and follow prescribed routines during fixed hours when not available for private duty nursing,
3. The IRS Ruling: While licensed practical nurses and registered nurses engaged in private duty nursing are generally considered to be independent contractors, in those cases where such nurses are on the regular staff of a hospital, clinic, nursing home, physician, etc., work for a salary, and follow prescribed routines during fixed hours when not available for private duty nursing, they are employees. (Rev. Rul. 61-196).

Situation #3:

1. Physician A: A nonprofit corporation employed physicians under contract to provide medical services at its family health clinics.
2. Facts of the Situation:
   
   1. The hours the clinic was open were set by the corporation and the physicians agreed to work those hours deemed reasonable by the clinic.
   2. The corporation could require the physicians to comply with the rules and regulations of the clinic.
   3. The contract between the clinic and the physician could be terminated at any time, with or without cause, by the clinic or the physician.
   4. The corporation paid for the physicians' insurance, including their malpractice insurance.
   5. The corporation provided offices, facilities, medical equipment, personnel, supplies, utilities, accounting (including patient billing) and legal services.
   6. The physicians were paid a monthly salary based on a percentage of the gross fees collected from the physicians' (or their designees') patients. They were not paid for vacation or sick time or for leaves of absence.
3. The IRS Ruling: The IRS concluded that although the physicians were skilled professionals and therefore performed their services with little direction and control, the corporation had the right to direct and control them to the extent necessary to establish an employer-employee relationship under the usual common law rules (PLR 9149001).

Situation #4:

1. Physician B: A physician contracted with a hospital to act as its director of the Department of Pathology.
2. Facts of the Situation:
   
   1. The hospital furnished the necessary space, equipment, facilities, and personnel required for the operation of the pathology department.
   2. The physician hired his/her associate and paid for his services, paid for his own malpractice insurance, had complete control over the work in the department, and was not subject to supervision in the performance of his services; however, he was required to keep proper records and make periodic reports concerning the
      services rendered in the department.
   3. The technicians and secretaries employed in the department were employees of the hospital although their appointment was subject to the physician's approval.
   4. The physician received a stated percentage of the gross receipts of the department for his services as director, had access to the records of the department at all times, and was furnished with a monthly statement of his account. The rates for his services were set jointly by the physician and the hospital administrator.
   5. The physician also performed services for two other hospitals.
3. The IRS Ruling: The IRS determined that the physician was not subject to direction and control by the hospital to the extent necessary to establish an employer-employee relationship (Rev. Rul. 66-274).

1. Physician C: A physician worked for a state university’s student medical clinic on an on-call basis but maintained their own private practice outside the university.
2. Facts of the Situation:
   
   1. The university directed the physician’s work methods, supervised her performance, and provided all equipment, supplies, and office space.
   2. The physician was paid on an hourly basis with no guaranteed minimum amount of pay or fringe benefits.
   3. The relationship could be terminated at will by either party.
   4. There was no opportunity for the physician to incur a gain or loss from the relationship.
3. The IRS Ruling: The IRS concluded that an employment relationship was present because the university exercised sufficient right to control and direct the physician, not only as to the result to be accomplished but as to the details and means by which her services were accomplished (PLR 9326015).

1. X-Ray Technician: An x-ray technician worked at a state hospital on a part-time basis.
2. Facts of the Situation:
   1. The worker was required to perform the services personally and to adhere to State and Federal guidelines.
   2. They were instructed on the manner in which the work was to be performed.
   3. The hospital retained the right to change the methods used by the worker.
   4. The worker was paid an hourly rate, given on-the-job training, and furnished with all the necessary equipment and supplies by the hospital
   5. The worker provided similar services for others; however, those services were not advertised or listed in the telephone directory.
3. The IRS Ruling: The IRS ruled that the hospital exercised the direction and control over the worker necessary to establish an employer-employee relationship (PLR 9201033).

Situation #1:

1. Architect: An individual was engaged under an oral agreement by a professional architectural company, on a project-by-project basis, to provide architectural services on the company's premises.
2. Facts of the Situation:
   
   1. The company furnished office and desk space, secretarial and telephone services, and all necessary materials and equipment.
   2. The individual was subject to the company's instruction regarding the manner in which the work was performed.
3. The IRS Ruling: The IRS ruled that since the individual was subject to the company's supervision to the extent necessary for the successful completion of a particular project, she was an employee of the company for purposes of income and employment tax withholding (Revenue Ruling 74-412).

Situation #2:

1. Janitor: An office janitor whose employment was changed by her employer from employee to independent contractor was later ruled by the IRS to be an employee of the company. The company provided the janitor with a written agreement that stipulated the following situation noted below.
2. Facts of the Situation:
   
   1. Payments were made on a monthly basis (all transportation expenses were reimbursed by the company);
   2. Workers' Compensation Insurance and all supplies and equipment were provided by the company;
   3. Cleaning was to be performed in accordance with a written cleaning requirements list which detailed 19 different services the janitor was required to perform and specified how often the services should be performed; and
   4. The relationship could be terminated by either party on 30 days written notice.
3. The IRS Ruling: The IRS concluded that the company exercised, or retained the right to exercise, the degree of direction and control necessary to establish an employer-employee relationship. The company had the right to direct and control the janitor in the performance of services, not only as to what was to be accomplished by the work but also as to the details, as indicated by the cleaning requirements list (PLR 9419020).

Situation #3:

1. Secretary A: A secretary was engaged to provide full-time services to the executive branch of a state government.
2. Facts of the Situation:
   
   1. The worker was given instructions on what she was supposed to accomplish and also how her job was to be performed.
   2. She was required to follow a schedule established by her superiors who retained the right to change her work method and to supervise her performance, indicating that not only the result but the method of accomplishing that result was controlled by the employer.
3. The IRS Ruling: The IRS ruled that she was employee because her supervisors controlled not only the result of what she was supposed to accomplish but how she was supposed to accomplish that result. (PLR 9201008).

Situation #4:

1. Secretary B: A company hired a person to work as a secretary-receptionist.
2. Facts of the Situation:
   
   1. All materials, equipment, and supplies used by the secretary in the performance of her services were provided by the company; the company controlled her schedule and directed the format and prioritizing of her work; services were required to be performed at the company's office; similar services were not performed for others; and the company retained the right to discharge the secretary at any time and she could terminate her services for the company at any time.
   2. The secretary was hired under a written contact stating that she was an independent contractor.
3. The IRS Ruling: In its determination, the IRS concluded that the company exercised its right to direct and control the secretary in the performance of her services not only as to what was to be accomplished but also as to the details of how to accomplish it, as indicated by the instructions she was given. Other determining factors included the fact that she had a continuous relationship with the company, she was not engaged in an independent business enterprise of providing secretarial services to the public, and she could not incur a loss. The fact that the parties entered into a contract classifying her as an independent contractor was irrelevant to the final determination. (PLR 9426023).

1. Interpreter: A firm hired an interpreter, on an occasional basis, to provide English/Spanish translation during the course of classroom instruction provided by the firm.
2. Facts of the Situation:
   
   1. The interpreter was paid a fixed sum per day.
   2. The interpreter was expected to perform the services personally on the firm’s premises, during the hours that the firm scheduled classes.
3. The IRS Ruling: The IRS found that the arrangement between the interpreter and the firm was one in which the interpreter was subject to the direction and control of the firm in the performance of her duties as an interpreter. Accordingly, the IRS ruled that an employer/employee relationship existed. (PLR 8701044).

1. Student Interns: Students, who were common law employees of a Federal agency that sponsored summer internship programs, attended an internship program at a state university.
2. Facts of the Situation:
   1. The funding for the program was provided by the agency.
   2. The students' daily activities were supervised by the agency.
   3. The students were not charged tuition or fees and did not receive degree credits for participation in the program.
3. The IRS Ruling: The IRS ruled that for FICA and income tax withholding purposes the students were employees of the university, not the agency, because the university had control over the payment of wages (PLR 9439004).

The relative significance of the rulings cited in the above examples varies, as follows:

Private Letter Rulings (PLR): Apply only to the parties involved and the particular set of facts covered. Although the IRS is not bound by these Rulings when dealing with a party other than the one to whom the Ruling was addressed, such Rulings are an indication of how the IRS may be likely to treat similar transactions or activities.

Revenue Rulings (Rev. Rul.): Represent the official policy of the IRS; however, the courts generally do not recognize Revenue Rulings as having the force of law.

Since it is unlikely that all aspects of a particular ruling will be applicable in every case, each employee/independent contractor determination must be made on a facts and circumstances basis.